Research house Kenaga was reassured of Alliance Bank’s position to ride on the ongoing economic recovery phase, with the loans book looking to rise on increasing disbursements. Its SME profile also appears to still be promising while CASA security is likely to be intact for the coming periods. These would keep the ROE delivery firm amidst weaker NOII.
Key takeaways from the recent meeting with the group indicated loans trajectory to make up for flattish 1QFY23. 1QFY23 loan book plateaued QoQ against the system loan growth of 1.4% on the same period. This is attributed to the normalisation of higher drawdowns in 4QFY22 and healthier bookings backed by higher disbursements in housing mortgages. While auto financing also appears to be growing, its contribution is muted by its relatively low participation in this space.
Meanwhile, the SME pipeline will likely remain supported by growing working capital needs as the economy expands. Although the three 25 bps OPR hikes pose concerns about delinquencies, the research house is unperturbed as the group affirmed that its household portfolio mainly comprises T20 accounts (c.70%). Its high SME mix (33% of total loans) may also be largely unaffected as even its segments of concern are expected to see better output, though below pre-pandemic capacity.
While the group maintained that it would be conservative with the management of its provisions and overlays (RM408m balance), Kenanga believes mechanical adjustments will still be due when the required six-month payment resumption trend is established.
On CASA, the group possesses a leading mix of 50% which should continue to keep funding costs low.
Post-meeting, earnings assumptions are kept unchanged. The stock’s fundamentals are comparatively better than its larger-cap peers in terms of ROE an dividend yields.